Overall, the bill seems to be a net positive, with some much needed changes and additions for small businesses. To be honest, it was a pleasant surprise to see some last-minute additions that we weren’t expecting. However, there are already a ton of questions being raised by tax professionals about specific provisions in the bill that seem to muddy the water.
The president is looking to increase stimulus payments from $600 to $2000 and specific aid for restaurants. This new development will likely breathe new life into the proposed RESTAURANTS act.
- Another round of PPP money for businesses who have had a 25% reduction in revenue in Q1, Q2 or Q3 of 2020, relative to the same quarter in 2019. We anticipate PPP round 2 applications opening in early January
- PPP expenses are now deductible and the income is still nontaxable
- SBA will make an additional 3 months on any outstanding 7(a) loans
- Employee retention credit can now be used even if you have a PPP loan
- Businesses in low income communities are eligible for the full $10,000 EIDL Advance Grant even if they do not have 10 employees
- Sick leave for COVID purposes extended until March 31, 2021 (FFCRA provisions)
Businesses will be eligible for a second round of PPP money so long as they meet the following criteria:
- They do not employ more than 300 employees (per location); with a loan max of $2M.
- You need to have used all of the money from the original PPP, but the original PPP doesn’t need to be forgiven.
- You need at least a 25% reduction in revenue in Q1, Q2 or Q3 of 2020, relative to the same quarter in 2019.
Additionally, we have some major changes to the PPP program:
- PPP expenses are deductible
- Significant changes to what is considered “other covered costs”
- Simplified forgiveness for those loans under $150,000
- EIDL Advance Grants no longer reduce your forgiveness
- If you haven’t applied for forgiveness, you can now use the new rules
Those juicy PPP details
What hasn’t changed…
- The 60/40 split required between payroll and “other expenses” to achieve 100% forgiveness, but other covered costs have changed.
- It’s an 8 to 24 week period for your “covered period”
- The money is still a liability until the point of forgiveness.
- You still apply for it through your lender or bank.
- The safe harbor provisions FTE’s still remain and apply to the restaurant industry at large.
- The loan amount will be 2.5x average monthly payroll. This payroll number can be either the 2019 average, or the previous 12 months. This creates an interesting loophole, where you could potentially add a year end bonus to increase the monthly payroll number. Restaurants also have an exception where they can use 3.5x average monthly payroll.
And what has…
- Forgiven loans are non-taxable revenue, and expenses paid by the PPP are deductible.
- “Other expenses” (for purposes of calculating your 60/40 ratio) to qualify for forgiveness had previously been limited to just rent payments and utility payments. Now, they are adding in some other covered expenses as well:
- Additional operations expenditures including payment for any software, human resources, and accounting.
- Property damage costs related any public disturbances that occurred during 2020 that are/were not otherwise covered by insurance.
- Certain supplier costs, meaning expenditures to a supplier pursuant to a contract, purchase order or order for goods in effect prior to taking out the loan that are essential to the recipient’s operations at the time at which the expenditure was made. Supplier costs of perishable goods can be made before or during the life of the loan.
- PPE and adaptive investments to help comply with federal health and safety guidelines related to COVID during the period of March 1, 2020 and the end of the national emergency declaration.
- Specific Group Insurance Payments as Payroll Costs Clarification that other employer-provided group insurance benefits are included in payroll costs. This includes group life, disability, vision, or dental insurance.
- The loans have a lower maximum amount of $2M; and the lower 300 employees per location. Business cannot be publicly traded.
- Specific industries may qualify to receive a loan amount of 3.5x average monthly payroll costs, as opposed to the traditional 2.5x. And it looks like the broad category is “Accommodations and Food Services.”
- Simplified forgiveness for loans under $150k, to be more in line with the 3508S, which currently only applies for loans under $50k.
- If you haven’t sought forgiveness for your first PPP loan yet, you are now entitled to use these new rules in crunching your numbers for a more favorable outcome! With anything PPP, it seems that it always pays to be patient.
- Repeals EIDL Advance Reduction that occurred when borrowers sought PPP loan forgiveness. This means, the reduction in PPP forgiveness is no longer a thing.
Economic Injury Disaster Loan (EIDL)
- Adds $20B to the EIDL Grant program
- EIDL Advance expansion for small business employers located in low-income communities, have suffered economic loss of greater than 30%, and employ 300 or fewer employees. This allows these employers to receive the full $10k advance even if they do not have 10 employees.
- Extends emergency EIDL Grants through 2021.
SBA 7(a) Loan Payments
- SBA will make 3 additional months of loan payments on SBA 7(a) loans. This is in addition to the 6 months approved by the CARES Act. Loans made since the CARES Act and the enactment date of this bill could be eligible for 9 months of payments.
- SBA loans made within 6 months of the signing of the bill will be eligible to have 6 months of loan payments made on their behalf (not to exceed $9,000 per month)
Business Credits and Sick Leave
Employee Retention Tax Credit (ERTC)
- Can now be taken in conjunction with the PPP. Employers who receive PPP loans may still qualify for the ERTC with respect to wages that are not paid for with forgiven PPP proceeds. Translation: You can use it for wages but you cannot double dip on the wages paid with PPP money.
- Starting January 1, 2021 through July 1, 2021, ERTC increases the credit rate from 50% to 70% of qualified wages.
- Expands eligibility for the credit by reducing the required year-over-year gross receipts to decline from 50% to 20% and provides a safe harbor allowing employers to use prior quarter gross revenue to determine eligibility for the same period above.
- Increases the limit on per-employee creditable wages from $10,000 for the year to $10,000 for each quarter.
- Increases the 100-employee limit for determining the relevant qualified wage base to employers with 500 or fewer employees.
- Removes the 30-day wage limitation, allowing employers to, for example, claim the credit for bonus pay to essential workers.
- Allows businesses with 500 or less employees to get an advance on the credit at any point during the quarter. The credit is based on wages paid in the same quarter in a previous year
- Provides rules to allow new employers who were not in existence for all or part of 2019 to be able to claim the credit.
- Retroactive to the effective date included in the CARES Act, the proposal:
- Clarifies the determination of gross receipts for certain tax exempt organizations.
- Clarifies that group health plan expenses can be considered qualified wages even when no other wages are paid to the employee, consistent with IRS guidance.
Extension of certain deferred payroll taxes
- Disclaimer: Don’t use this option, you’re still on the hook for the withholding if the employee leaves. This is a bad option for owners.
- On 8/8/2020, they issued a memorandum to allow employers to defer withholding employees’ share of social security taxes from 9/1/2020 through 12/31/2020, and required employers to increase withholding and pay the deferred amounts ratably from wages and compensation paid between 1/1/2021 and 4/31/2021.
- This bill extends the repayment period through 12/31/2021. Penalties and interest on deferred unpaid tax liability will not begin to accrue until 1/1/2022.
Work Opportunity Tax Credit
- Extends, through 2025, an elective general business credit to employers hiring individuals who are members of one or more of ten targeted groups under the WOTC program.
Paid Sick Leave
- Extends through 3/31/2021 the refundable payroll tax credits for paid sick and family leave that were established in the Families First Coronavirus Response Act
- Extends through 2025 the tax credit for paid family and medical leave. The credit is equal to 12.5% of eligible wages if the rate of payment is 50% employees normal wages, and is increased by 0.25 percentage points (but not above 25%) for each percentage point that the rate of payments exceeds 50%. The maximum of family and medical leave that may be taken into account with respect to any qualifying employee is 12 weeks per taxable year
Stimulus and Unemployment
Individual Economic Stimulus Payments
- Provides a refundable tax credit in the amount of $600 per eligible family member. The credit is $600 per taxpayer ($1,200 for married filing jointly), in addition to $600 per qualifying child. The credit phases out starting at $75,000 of modified adjusted gross income ($112,500 for heads of household and $150,000 for married filing jointly) at a rate of $5 per $100 of additional income. Same story as before.
Unemployment and Leave
- Restore and reduce the Federal Pandemic Unemployment Compensation (FPUC) from $600 to $300.
- The extra payments would apply to weeks of unemployment after 12/26/2020 and through 3/14/2021
- Extends through 3/14/2021 other CARES Act unemployment benefits slated to expire on 12/31/2020 with changes:
- Increasing the duration of Pandemic Unemployment Assistance benefits to as long as 50 weeks from 39 weeks, for individuals who don’t qualify for regular benefits. Individuals applying for benefits would have to submit documentation to verify employment. States also would have to verify the identity of applicants
- Extends to 24 weeks, from 13 weeks, benefits for those who’ve exhausted regular benefits under the Pandemic Emergency Unemployment Compensation program. States would establish or defer the establishment of a new benefit year to provide regular or emergency benefits.
- The additional benefits could continue through 4/5/2021 for individuals who haven’t exhausted them yet.
- Federal payments to reimbursing nonprofits for half of their costs of providing unemployment benefits
- Full federal funding to qualifying states for the Extended Benefit (EB) and work-sharing programs which are established in state laws.
- Partial funding for states to provide regular unemployment benefits without a waiting period
- Waives the restriction on states to trigger Extended Benefit programs retroactive to 11/1/2020 and through 12/31/2021
- Requires states to have procedures in place 30 days after enactment to address unemployment claimants who refuse to return to work or refuse to accept an offer of work without good cause, such as:
- A reporting method for employers to notify the state of the refusals
- A plain language notice to claimants about state return to work laws, rights to refuse to return to work or to refuse suitable work and information on contesting a denial of a claim, as well as what constitutes suitable work, including a claimant’s right to refuse work that poses a risk to the claimant’s health and safety.
New Unemployment Program
- Provides an additional $100 weekly jobless benefit to self-employed individuals who earn at least $5,000 in the most recent tax year but weren’t eligible for benefits under the Pandemic Unemployment Assistance program. The additional benefit would be voluntary for states and would be added to the FPUC benefit through 3/14/2021.
A Million Other Things
This bill is 5,593 pages long, so there are a lot of other things in this bill including year end tax extenders, normal government spending appropriations, other stimulus items and even the Dalai Lama. However, we hope we have covered the major items that will impact you. If not, we will do our best to communicate those items as they come to our attention.